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Five Questions To Ask Before Investing.

Article By : Patrick Mansfield | U.S. Consumer Finance
SEC Charges Penny Stock Fraud
Whether you’re new or familiar with personal finance, it’s never easy to invest. In fact, it can be a challenging process, especially for a beginner. However, to offer you an ease of mind while making an investment, follow these five questions to ask yourself and get on the right foot. 

Question 1: Is Your Seller Fully Licensed?

Research has shown that potential fraudulent actors will try to showcase themselves as sellers, making a profit from less experienced investors. This means that you should do a full background check on anyone who’s seeking investors to prevent yourself from becoming a victim. You can use FINRA’s BrokerCheck website to check a broker’s qualifications and background to see if they’re legitimate. Also, check out The Investment Public Disclosure website to see which investment firms are registered with the SEC to make sure your broker can run their practice. However, if you’re still unsure about your broker, you can call the SEC’s investor assistance line, which is 800-732-0330. 

Question 2: Is The Investment Registered?

Every sale has to be registered with the SEC. This is important because it provides investors with information about the broker’s products, management, services, and basic finances. Avoid a potentially disastrous deal by checking whether or not your investment is registered with the SEC using the SEC’s EDGAR database. However, you can also call the SEC’s investor assistance line as well. 

Question 3: What Do the Risks Look Like Compared to the Future Rewards?

With all investments, you must take risks to gain the future rewards. The greater to potential return, the greater the risk will be. However, greater risks also mean the potential for greater losses. It is important that you know which risks are worth taking and which you should pass on. Understanding the balance of risk and reward can help you to make smarter investment decisions and determine which investments are legitimate and which are unlawful schemes. Bear in mind that every financial investment comes with risks of varying degrees. Don’t fall victim to an investment fraud that boasts high return potential with no or little risks. Keep your money far away from these schemes or report them to the SEC.

Question 4: Do You Fully Understand The Investment?

If you want to be a successful investor, you should always listen to this one piece of advice. Do not invest in anything that you do not completely understand. Make sure to read every document that you can about the potential investment, including the disclosure statement or prospectus. If you have read the documents with a careful eye and still cannot understand the investment or how it will make you money, speak with a trustworthy financial advisor. If, after talking to a professional, you still have questions or doubts, you should refrain from investing.

Question 5: Where Can You Go To Get Assistance?

Whether you have a specific question or simply want to learn more information, it is important to know where you can go to get the help you need. Getting the unbiased information you need to make a smart investment decision is crucial, no matter if you are looking into an investment, investment professional, new products, or common scam. One of the best ways you can find out this information is by using the tools and resources on the websites of securities regulators. These websites can help you to achieve the clarity you need to make your decision. If you have a specific concern or question about an investment, reach out to the FINRA, SEC, or your state securities regulator.
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